effects of provider consolidation in healthcare: the latest research seth freedman assistant...

Effects of Provider Consolidation in Healthcare: The Latest Research

Seth FreedmanAssistant Professor, IU SPEA

November 21, 2014

Recent Trends in Consolidation

• New wave of hospital mergers− 50-60 per year during 2000s− 90-100 per year since 2011

• ~15% increase in # of hospitals in systems since 2002

• Increasing prevalence of hospital owned physician practices

April 19, 2023Seth Freedman, IU SPEA


Outline

• Recent trends in consolidation

• Conceptual effects of consolidation

• Empirical evidence of effects

• Some implications moving forward

Effects of Consolidation on:

1. Provider Costs

2. Price

3. Quality

4. “Medical Arms Race”


Varying Types of Consolidation


Focus of Today’s Talk

• Hospital market competition and mergers− Most well developed research area

• Two main types of studies− Comparing more and less competitive

markets− Before and after studies of mergers


Focus of Today’s Talk

• Will mention some early work on− System acquisitions− Hospital/physician integration


Important areas for future research

RECENT TRENDS IN PROVIDER CONSOLIDATION


Chart 2.9: Announced Hospital Mergers and Acquisitions, 1998 – 2013

Source: Irving Levin Associates, Inc., The Health Care Acquisition Report, Twentieth Edition, 2014. (1) In 2006, the privatization of HCA, Inc. affected 176 acute-care hospitals. The acquisition was the largest health care

transaction ever announced.

(1)

Chart 2.4: Number of Hospitals in Health Systems,(1) 2002 – 2012

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Hos

pita

ls

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2012, for community hospitals. (1) Hospitals that are part of a corporate body that may own and/or manage health provider facilities or

health-related subsidiaries, as well as non-health-related facilities including freestanding and/or subsidiary corporations.

April 19, 2023Seth Freedman, IU SPEAmedec.com/medicinemonopoly

http://medec.com/medicinemonopoly

CONCEPTUAL EFFECTS OF CONSOLIDATION


Conceptual Effects

• Typical antitrust concerns: lack of competition increases prices

• The health care sector is different!


Consolidation and Cost

• Economies of scale • Facilitate investment in EMRs• Improved access to capital• Eliminating duplicative services or excess

capacity• Effects likely to depend on extent to

which merging hospitals combine facilities or not


Consolidation and Prices


Consolidation and Quality


Adding MCOs


Medical Arms Race

• True clinical “quality” is difficult for patients to observe

• Hospitals may compete by investing in flashy things that attract patients, but may not improve care− Amenities− Medical technology with little or

uncertain benefit


EMPIRICAL EVIDENCE


Challenges to empirical research

• Lag time to obtaining data• Defining markets

− Arbitrary geographic classifications− Patient flows

• Measuring actual transaction prices• Hospitals sell many “products”• Correlation vs. causation


Correlation vs. Causation


Provider Costs

• Some evidence of general economies of scale in hospitals

• Few direct studies of consolidation on costs


Provider Costs

• One high-quality, direct study: Dranove and Lindrooth (2003)− Studied 122 mergers between 1989

and 1996• 81 of these mergers combine licenses

− Find 14% cost savings in license-combining mergers

− No savings in others


Prices

• One of the most well developed areas of research

• Consistent evidence that level of market concentration raises prices− Much early evidence from CA− Newer work examines FL, MA, and

full US− Must studies based on data through

mid-2000s


Prices


Prices

• Consistent evidence that mergers raise prices

• Variety of methods to ensure appropriate “control” hospitals


Prices Example: Dafny (2009)

• Do hospitals raise prices when rivals merge?

• Leverages “co-located” rivals


Prices Example: Dafny (2009)

• Find that mergers lead to 40% higher prices

• National coverage• Most “event studies” find effects upwards

of 20%, especially when markets are already relatively concentrated


Quality• Large literature on effects of competition on

quality under both pricing schemes• Administered pricing

− Older studies on Medicare find competition improves quality

− Newer studies of GB policy change find consistent results

• Market-based pricing− Results mixed, but lean towards quality

improving with more competition


Quality

• Much of this literature based on mortality outcomes

• Especially AMI patients• May be incomplete picture of overall

“quality”


Medical Arms Race

• Little direct research on the MAR hypothesis

• Some indirect evidence from pre-1991

− Kessler & McLellan (2000): “Is Hospital Competition Socially Wasteful?”

− Competition increased costs without clear impacts on health outcomes for elderly heart disease patients

− After 1991, competition unambiguously beneficial


Medical Arms Race

• “the medical arms race is slowed by insurers with market power in markets with sufficient competition among hospitals. As hospitals continue to consolidate and integrate with other providers (e.g., as encouraged by the ACO movement), I wonder if the medical arms race will return.”~Austin Frakt, http://theincidentaleconomist.com/wordpress/the-medical-arms-race/


http://theincidentaleconomist.com/wordpress/the-medical-arms-race/

http://theincidentaleconomist.com/wordpress/the-medical-arms-race/

Medical Arms Race

• Some evidence patients value “amenities”• Goldman & Romley (2008): “Hospitals as

Hotels”− Medicare pneumonia patients in LA

value amenities− Patients actually more responsive to

amenities than clinical quality in choosing hospital

• Need more direct evidence on competition and tech/amenities investment


Physician Integration

• Major data limitations• Researchers currently working on

competition in physician markets− Preliminary evidence: consolidation of

physician offices raises prices• Also evidence that physician/hospital

integration raises prices• Need to know more about quality

outcomes!April 19, 2023Seth Freedman, IU SPEA

Effect Of Hospital Integration And Market Competitiveness On Hospital Prices.

Baker L C et al. Health Aff 2014;33:756-763

©2014 by Project HOPE - The People-to-People Health Foundation, Inc.

Hospital Systems

• Hospitals in multi-hospital systems increased prices more between 1999 and 2003 (Melnick & Keller 2007)

− 34% more for large systems

− 17% more for small systems

− Results not confined to hospitals with other system members in local market

− Suggestive of important bargaining power


Hospital Systems & Physician Integration• Know very little about other potential

effects− Efficiency− Financial stability− Care coordination− Quality


Summary of Research Findings: Effects of consolidation


Implications Moving Forward

• Much of our knowledge based on 1990s merger wave

• Will consolidation continue to accelerate?• Will current mergers and acquisitions

have similar or different effects?


ACOs, Physician Integration, and Multi-Hospital Systems• New models of care delivery becoming

increasingly important• Clear scope for price effects• How will this be balanced with potential

benefits?• How will regulators respond? Balancing

act between FTC and ACA


effects of provider consolidation in healthcare: the latest research seth freedman assistant...

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